No. 12-10489
In the
United States Court of Appeals
for the Fifth Circuit
NETSPHERE, INC. Et Al,
Plaintiffs
v.
JEFFREY BARON,
Defendant – Appellant
v.
QUANTEC L.L.C.; NOVO POINT L.L.C.,
Non Party – Appellants
v.
ONDOVA LIMITED COMPANY,
Defendant – Appellee
v.
PETER S. VOGEL,
Appellee
Appeal of Asset Disposal Orders in Ex Parte Receivership
Imposed to Prevent Jeff Baron from Hiring Counsel and
to Force Settlement of Non-Diverse Unpled
Non-Party Former Attorney Fee Claims Alleged against Jeff Baron
From the United States District Court
Northern District of Texas, Dallas Division
Civil Action No. 3-09CV0988-F
EMERGENCY MOTION FOR STAY PENDING APPEAL
OF ORDER TO LIQUIDATE NON-PARTY ASSETS AND DISTRIBUTE
RECEIVERSHIP RES
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CERTIFICATE OF INTERESTED PERSONS
The undersigned counsel of record certifies that the following listed persons
and entities have an interest in the outcome of this case. These representations are
made in order that the judges of this Court may evaluate possible disqualification
or recusal.
1. PARTIES
a. Defendant/Appellant: JEFFREY BARON
b. Defendant/Appellee: DANIEL J. SHERMAN, Trustee
for ONDOVA LIMITED COMPANY
c. Intervenor: Rasansky, Jeffrey H. and Charla G. Aldous
d. Intervenor: VeriSign, Inc.
e. Plaintiffs: (1) Netsphere Inc
(2) Manila Industries Inc
(3) Munish Krishan
f. Appellants: (1) Novo Point LLC
(2) Quantec LLC
(3) Jeffrey Baron
g. Appellee: Peter S. Vogel
2. ATTORNEYS
a. For Appellant: Gary N. Schepps
Suite 1200
5400 LBJ Freeway
Dallas, Texas 75240
Telephone: (214) 210-5940
Facsimile: (214) 347-4031
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b. For Appellee Vogel: Gardere Wynne Sewell LLP
(1) Barry Golden
(2) Peter L. Loh
1601 Elm Street, Suite 3000
Dallas, Texas 75201
Telephone (214) 999-3000
Facsimile (214) 999-4667
bgolden@gardere.com
c. For Appellee Sherman:
Munsch Hardt Kopf & Harr, P.C.
(1) Raymond J. Urbanik, Esq.
(2) Lee J. Pannier, Esq.
3800 Lincoln Plaza / 500 N. Akard Street
Dallas, Texas 75201-6659
Telephone: (214) 855-7500
Facsimile: (214) 855-7584
c. For Intervenor VeriSign: Dorsey & Whitney (Delaware)
(1) Eric Lopez Schnabel, Esq.
(2) Robert W. Mallard, Esq.
d. For Intervenor Rasansky and Aldous: Aldous Law Firm
(1) Charla G Aldous
d. For Plaintiffs:
(1) John W MacPete, Locke Lord Bissell & Liddell
(2) Douglas D Skierski, Franklin Skierski Lovall Hayward
(3) Franklin Skierski, Franklin Skierski Lovall Hayward
(4) Lovall Hayward , Franklin Skierski Lovall Hayward
(5) Melissa S Hayward, Franklin Skierski Lovall Hayward
(6) George M Tompkins, Tompkins PC
3. OTHER
a. Companies and entities purportedly seized by the receivership:
(1) VillageTrust
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(2) Equity Trust Company
(3) IRA 19471
(4) Daystar Trust
(5) Belton Trust
(6) Novo Point, Inc.
(7) Iguana Consulting, Inc.
(8) Quantec, Inc.,
(9) Shiloh LLC
(10) Novquant, LLC
(11) Manassas, LLC
(12) Domain Jamboree, LLC
(13) Genesis, LLC
(14) Nova Point LLC
(15) Quantec LLC
(16) Iguana Consulting, LLC
(17) Diamond Key, LLC
(18) Quasar Services, LLC
(19) Javelina, LLC
(20) HCB, LLC, a Delaware limited liability company
(21) HCB, LLC, a U.S. Virgin Islands limited liability company
(22) Realty Investment Management, LLC, a Delaware limited liability
company
(23) Realty Investment Management, LLC, a U.S. Virgin
(24) Islands limited liability company
(25) Blue Horizon Limited Liability Company
(26) Simple Solutions, LLC
(27) Asiatrust Limited
(28) Southpac Trust Limited
(29) Stowe Protectors, Ltd.
(30) Royal Gable 3129 Trust
b. Receiver / Mediator / Special Master: Peter Vogel
c. Non-party attorneys seeking fees from the receivership res:
1. Garrey, Robert (Robert J. Garrey, P.C.)
2. Pronske and Patel
3. Carrington, Coleman, Sloman & Blumenthal, LLP
4. Aldous Law Firm (Charla G. Aldous)
5. Rasansky Law Firm (Rasansky, Jeffrey H.)
6. Schurig Jetel Beckett Tackett
7. Powers and Taylor (Taylor, Mark)
8. Gary G. Lyon
9. Dean Ferguson
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10. Bickel & Brewer
11. Robert J. Garrey
12. Hohmann, Taube & Summers, LLP
13. Michael B. Nelson, Inc.
14. Mateer & Shaffer, LLP (Randy Schaffer)
15. Broome Law Firm, PLLC
16. Fee, Smith, Sharp & Vitullo, LLP (Vitullo, Anthony “Louie”)
17. Jones, Otjen & Davis (Jones, Steven)
18. Hitchcock Evert, LLP
19. David L. Pacione
20. Shaver Law Firm
21. James M. Eckels
22. Joshua E. Cox
23. Friedman, Larry (Friedman & Feiger)
24. Pacione, David L.
25. Motley, Christy (Nace & Motley)
26. Shaver, Steven R. (Shaver & Ash)
27. Jeffrey Hall
28. Martin Thomas
29. Sidney B. Chesnin
30. Tom Jackson
CERTIFIED BY: /s/ Gary N. Schepps
Gary N. Schepps
COUNSEL FOR APPELLANT
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TABLE OF CONTENTS
CERTIFICATE OF INTERESTED PERSONS .......................................................... 2
TABLE OF AUTHORITIES.......................................................................................... 7
A. Relief Sought & Standard .................................................................................... 9
B. Jurisdiction of the Court of Appeals................................................................. 11
C. Background ......................................................................................................... 14
The District Judge’s Action to Take Matters His Own Hands and Seize
Property Ex Parte to Forcibly Pay on Unpled Allegations Baron Owed
Money to Former Non-Party Lawyers...................................................................... 15
Then, a Motion to Support the Court’s Order was Filed .......................................... 16
Then, the District Court was Stayed ......................................................................... 16
The Matters Subject of the District Court’s Orders Challenged on this
Appeal are Before this Honorable Court, and Some have been Ruled on by
this Honorable Court................................................................................................. 18
The District Court’s Personal and Family Relationship to the Key
Beneficiaries of the District Court’s Orders were Disclosed in Appellate
Briefings on March 27, 2012 – and the District Court then Radically
Changed its Approach............................................................................................... 17
D. Likelihood of Success on Appeal ....................................................................... 18
Appeal Divests the District Court of Jurisdiction Over all Aspects of the
Case Appealed........................................................................................................... 19
The District Court was Divested of Jurisdiction over the Receivership Res ........... 20
Secret Ex Parte Proceedings ..................................................................................... 21
Fees may not be Paid in Unauthorized Receiverships.............................................. 22
The Sherman Fee Award has Absolutely No Basis in Law ...................................... 23
E. Irreparable Injury .............................................................................................. 26
F. No substantial Harm if Stay Granted ............................................................... 28
G. Conclusion ........................................................................................................... 29
CERTIFICATE OF EMERGENCY ........................................................................... 30
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TABLE OF AUTHORITIES
FEDERAL CASES
Atlantic Trust Co. v. Chapman,
208 U.S. 360, 373 (1908) .....................................................................................22
Belcher v. Birmingham Trust National Bank,
395 F.2d 685 (5th Cir. 1968)..................................................................................9
Booth v. Clark,
58 U.S. 322, 331 (1855) .......................................................................................12
Buckhannon Board & Care Home, Inc. v. West Virginia Dept. of Health and
Human Resources,
532 U.S. 598, 602 (2001) .....................................................................................23
Coastal Corp. v. Texas Eastern Corp.,
869 F.2d 817, 820 (5th Cir. 1989)........................................................................20
Cochrane v. WF Potts Son & Co.,
47 F.2d 1026, 1029 (5th Cir. 1931)......................................................................22
Connecticut v. Doehr,
501 U.S. 1, 19 (1991) ...........................................................................................15
Dayton Indep. School Dist. v. US Mineral Prods. Co.,
906 F.2d 1059, 1063 (5th Cir. 1990)............................................................. 19, 20
Forgay v. Conrad,
47 U.S. 201, 204-205 (1848)................................................................................22
Gannett Co. v. DePasquale,
443 U.S. 368, 412 (1979) .....................................................................................21
Gordon v. Washington,
295 U.S. 30, 37 (1935) .........................................................................................22
Griggs v. Provident Consumer Discount Co.,
459 U.S. 56, 58 (1982) .................................................................................. 19, 20
Key Tronic Corp. v. United States,
511 U.S. 809, 815 (1994) .....................................................................................24
Kos Pharmaceuticals, Inc. v. Andrx Corp.,
369 F.3d 700, 726 (3rd Cir. 2004)........................................................................28
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Lion Bonding & Surety Co. v. Karatz,
262 U.S. 640, 642 (1923) .............................................................................. 21, 22
Palmer v. Texas,
212 U.S. 118, 126 (1909) .............................................................................. 12, 20
Stern v. Marshall,
131 S.Ct. 2594, 2615 (2011) ................................................................................25
Tanzer v. Huffines,
412 F.2d 221, 222 (3rd Cir. 1969)........................................................................22
United States v. Larchwood Gardens, Inc.,
420 F.2d 531, 534 (3rd Cir. 1970)................................................................. 23, 24
Wabash R. Co. v. Adelbert College of Western Reserve Univ.,
208 U.S. 38, 46 (1908) .........................................................................................21
FEDERAL STATUTES
28 U.S.C. § 2004......................................................................................................22
28 U.S.C. §1651.......................................................................................................12
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TO THE HONORABLE JUSTICES OF THE FIFTH CIRCUIT COURT OF
APPEALS:
NOW COME Appellants Novo Point LLC and Quantec LLC and Appellant
Jeffrey Baron, defendant, and respectfully move this Honorable Court to enter
orders, to (1) immediately and temporarily stay the orders of the District Court
pending consideration of this motion and (2) staying the orders of the District
Court pending appeal. In support Appellants respectfully show:
A. Relief Sought & Standard
Appellants seek a stay pending appeal pursuant to Federal Rule of Appellate
Procedure 8(a). The criteria for a stay pursuant to Rule 8(a) are well established,
as follows. The movant must show: (1) likelihood of success on the merits, (2)
irreparable injury if the stay is not granted, (3) absence of substantial harm to the
other parties from granting the stay and (4) service to the public interest from
granting the stay. E.g., Belcher v. Birmingham Trust National Bank, 395 F.2d 685
(5th Cir. 1968).
The stay is sought jointly and in the alternative for the following orders:
a. [DOC 906] The District Court’s Order GRANTING IN PART THE
RECEIVER’S 883 MOTION FOR APPROVAL OF
ADMINISTRATIVE COSTS AND TO DISBURSE CASH AND
SELL DOMAIN NAMES TO FUND ADMINISTRATIVE COSTS.
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(Ordered by Judge Royal Furgeson on 5/3/2012) (Entered:
05/03/2012).
b. [DOC 904] The District Court’s Order ORDER: Defendant Jeffrey
Baron should retain trial counsel for his representation in the
underlying suit. (Ordered by Judge Royal Furgeson on 5/3/2012)
(Judge Royal Furgeson) Modified on 5/3/2012 (Furgeson, Royal).
(Entered: 05/03/2012).
c. [DOC 903] The District Court’s Order GRANTING THE
RECEIVER’S FIFTEENTH APPLICATION FOR
REIMBURSEMENT OF FEES INCURRED BY MARTIN THOMAS
886 (Ordered by Judge Royal Furgeson on 5/3/2012) (Entered:
05/03/2012).
d. [DOC 902] The District Court’s Order GRANTING THE
RECEIVER’S SIXTH APPLICATION FOR REIMBURSEMENT OF
FEES INCURRED BY THOMAS JACKSON 602 (Ordered by Judge
Royal Furgeson on 5/3/2012) (Entered: 05/03/2012).
e. [DOC 901] The District Court’s Order GRANTING THE
RECEIVER’S FOURTH APPLICATION FOR REIMBURSEMENT
OF FEES INCURRED BY MARTIN THOMAS 593 (Ordered by
Judge Royal Furgeson on 5/3/2012) (Entered: 05/03/2012).
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f. [DOC 897] The District Court’s Order GRANTING THE
RECEIVER’S MOTION TO RELEASE RECEIVER FROM
OBLIGATION OF FILING TAX RETURNS FOR CERTAIN
RECEIVERSHIP PARTIES (Ordered by Judge Royal Furgeson on
5/3/2012) (Entered: 05/03/2012).
g. [DOC 896] The District Court’s Order granting doc 467 Motion for
Attorney Fees (Ordered by Judge Royal Furgeson on 5/3/2012)
(Entered: 05/03/2012).
B. Jurisdiction of the Court of Appeals
Federal Rule of Appellate Procedure 8(a)(1) provides that a motion for stay
of an order “must ordinarily be presented to the district judge in the first instance.”
The District Court had previously advised this Honorable Court that a stay of the
asset sales to allow appeal would be proper. SR. v9 p97. However, Baron
presented his motion to the District Court, requesting a ruling last week and no
relief was granted by the District Court. The District Court has instructed appellate
counsel for Novo Point LLC and Quantec LLC not to make motions seeking relief
for the non-party Appellants in the District Court. Accordingly, this motion for
stay is sought from this Honorable Court pursuant to Federal Rule of Appellate
Procedure 8(a)(1).
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When property is placed into a receivership, it is taken into possession by
the court through its representative, the receiver. See Booth v. Clark, 58 U.S. 322,
331 (1855). As a matter of binding precedent, when a receivership order is
appealed the effect of the appeal is that the appellate court has “jurisdiction over
the res the same as the trial court had”. Palmer v. Texas, 212 U.S. 118, 126 (1909).
Accordingly, this Honorable Court currently holds possession and jurisdiction over
the assets of Baron, Novo Point LLC and Quantec LLC. R. 3934, 4306.
Accordingly, pursuant to 28 U.S.C. §1651, this Honorable Court may issue “all
writs necessary or appropriate in aid of their respective jurisdictions”. If the
District Court’s orders authorizing sale and distribution of receivership assets—
cash and domain names owned by Novo Point LLC and Quantec LLC— are not
stayed, this Honorable Court will be divested of jurisdiction over that part of the
receivership estate. Staying the sale of receivership res is necessary to protect this
court’s possession and jurisdiction of the receivership estates that are the subject of
appeals pending before this Honorable Court.
Notably, for almost a year the District Court respected the jurisdiction of this
Honorable Court over the receivership res. A year ago, the District Court entered
an order that it was stayed
from taking further action on the matters on appeal
before this Honorable Court. SR. v8 p166. Accordingly, the District Court ordered
that all motions concerning the receivership be made before this Honorable Court.
SR. v8 p1189. This Honorable Court has acknowledged its jurisdiction over the
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receivership pending appeal, and has ruled on many orders regarding the
receivership res that have been pled before it. For example, one of those matters
was Sherman’s motion to pay his attorneys’ fees for the Defendant Ondova with
the assets of the non-parties Novo Point LLC and Quantec LLC, and/or to allow
the District Court to rule on his motion.
1
This Honorable Court declined to
allow the District Court to rule on the matter at this time and declined to grant
the relief requested by Sherman at this time. Rather, this Honorable Court ruled
that this Honorable Court would carry the motion with the case.
2
Similarly, the
other motions ruled on by the District Court and challenged in this appeal (or
equivalent motions) are currently pending before this Honorable Court.
3
The
District Court is aware of this, and in acting to divest this Honorable Court of
jurisdiction over the matters, ordered Vogel to withdraw the motions pending
before this Honorable Court. (Doc. 906).
1
Doc. 511738402 filed on 1/26/2012 in case 10-11202.
2
Doc. 511759009 filed on 2/15/2012 in case 10-11202.
3
E.g., Vogel’s “Second Sealed Ex Parte Motion For .. Liquidation of Assets”. (See response to
Vogel’s motion filed as Doc. 511781078 filed on 3/07/2012 in case 10-11202); Doc. 511831730
filed on 4/23/2012 in case 10-11202; Doc. 511831693 filed on 4/23/2012 in case 10-11202; etc.
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C. Background
In August, 2010, all claims pled in the lawsuit fully and finally settled and
all parties entered a stipulated order of dismissal with prejudice as to all claims.
R. 2109, et.seq., 2346-2356. There were two sets of claims asserted in the suit, as
follows:
(1) A diverse breach of contract claim brought by the
plaintiffs against the defendants Jeff Baron and his
company Ondova. R. 38-51. And,
(2) A non-diverse breach of contract claim brought as an
intervention against the same defendants by a law partner
of the District Judge’s brother-in-law, Charla Aldous, and
attorney J. Rasansky.
4
R. 385, et. seq.
Both the plaintiffs’ claim and the Aldous/Rasansky claim fully and finally settled in
August 2010. R. 2346-2356.
4
Two days after his brother-in-law’s law partner filed for intervention, the District Judge appointed a
partner at his sister-in-law’s former law firm to act as special master in the case. R. 394-396. The
appointment was ordered in violation of the mandatory requirements of Fed.R.Civ.P. 53(b)(3). The
District judge later appointed that same partner, Vogel, as mediator and, ex parte, as receiver.
R. 1574,1604. As receiver, Vogel moved for Novo Point LLC and Quantec LLC to be included into
his receivership. Vogel then arranged secret asset sales (complained of in a prior appeal) in order to
pay himself, his firm and ‘professionals’ over a million dollars. The million dollars in fees challenged
on that appeal were awarded by the District Judge without hearing, and were in addition to previous
fee awards to Vogel and his firm, also without hearing, totaling a million dollars and which were
taken by the District Court from Baron’s savings accounts, and emptying them. R. 1717, sealed Doc.
Nos. 424/425,480; SR. v8 p1007, pp990-992. This appeal challenges more secret sales to pay more yet
more ‘fees’ to Vogel and his firm and ‘professionals’ approved by the District Court, again, without
hearing, or supporting findings of fact, etc..
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The District Judge’s Action to Take Matters His Own Hands and
Seize Property Ex Parte to Forcibly Pay on Unpled Allegations
Baron Owed Money to Former Non-Party Lawyers
Several months later, the District Court was apparently concerned with
grievances against Jeff Baron, primarily the allegation that Baron owed money to a
series of former attorneys.
5
The allegations were not pled in the lawsuit before the
District Court.
6
However, on November 24, 2010, The District Court decided to
take matters into his own hands ‘in the interest of justice’.
7
In off-the-record ex
parte proceedings and without supporting pleadings, affidavits, service of process,
findings, etc., the District Court signed an order placing Jeff Baron and a long
series of non-party entities into receivership.
8
No affidavits, evidence, or sworn
showing was made to establish the cause for seizing the property subject of the
receivership. No bond was ordered to protect any party should the receivership
order be found wrongful.
9
No claim of exigent circumstances was made. The
5
While no findings were entered in support of the ex parte receivership order signed November
24, 2010, In February 2011 the District Court entered findings in denying Baron’s
Fed.R.App.P. 8(a) motion for relief pending appeal. SR. v2 p339, et. seq.
6
Other than of the partner of District Judge’s brother-in-law and Rasansky,
7
Id.
8
R. 1619-1632. The order was signed at 1:15pm. SR. v11 p83. No findings were entered in
support of the receivership order. It is unclear who drafted the order. Information about the ex
parte, off-the-record proceedings came to light from information provided by third parties and
examination of the creation time of key documents. See SR. v11 p82-84.
9
This basic constitutional requirement for ex parte action against private property relates to the
mandatory concern for the rights and possible injury that may be inflicted on the innocent should
the ex parte action be wrongful. The District Court failed to take any
steps at the time the ex
parte order was entered to protect the rights of Jeff Baron. As a matter of established law, that
one-sided approach to justice is a violation of Due Process of Law. Connecticut v. Doehr, 501
U.S. 1, 19 (1991).
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property ordered seized by the receiver was not subject to any claim pled, and no
party was served with process in relationship to the receivership proceedings.
Then, a Motion to Support the Court’s Order was Filed
Later in the day after the receivership order was signed, a motion seeking the
order was filed. R. 1716; SR. v11 p82-83. The sole grounds stated in the motion
for the need for a receivership was to prevent Jeff Baron from hiring legal counsel
to defend himself. R. 1578, ¶13. The District Court instructed the receiver, Peter
Vogel, to investigate and prosecute the allegations against Baron, but (according to
the receiver’s position) to ignore all exculpatory evidence
. SR. v7 p202.
Then, the District Court was Stayed
Multiple motions for stay of the receivership were denied by this Honorable
Court between December 8, 2010 and March 29, 2011, as follows: December 8,
2010 (No. 00511315299); December 20, 2012 (No. 00511327536); February 25,
2011 (No. 00511394852); March 3, 2011 (No. 0051140089); March 29, 2011 (No.
00511427530). The District Court was noticed and aware of each such order of
this Honorable Court. In light of the denial of a stay pending appeal to lift the
receivership and seizure of assets, on May 5, 2011 and June 20, 2011, the District
Court entered stay orders (Doc. 586 and Doc. 616) acknowledging that pursuant to
the binding precedent of this Honorable Court and U.S. Supreme Court, the
District Court was divested of jurisdiction over the matters on appeal and therefore
a formal stay was entered against further jurisdiction by the District Court over
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the receivership while the matter was on appeal to this Honorable Court, so that the
receivership res would be controlled by the Court of Appeals. SR. v8 p166; SR. v8
p1189.
The District Court’s Personal and Family Relationship to the Key
Beneficiaries of the District Court’s Orders were Disclosed in
Appellate Briefings on March 27, 2012 – and the District Court
then Radically Changed its Approach
On March 27, 2012, The District Court’s personal and family relationship to
key parties in interest and principal beneficiaries of the District Court’s orders with
respect to the receivership were disclosed in appellate filings before this Honorable
Court. The District Court then radically changed its approach and took a different
tact with this case, as follows: The District Court immediately ordered that a status
conference be held, and at that status conference attempted, apparently, to justify
the secret ex parte proceedings that were held with Sherman and Vogel
10
and
announced that the Court would now take a new course. The District Court then
entered an order declaring that because of the rulings of this Honorable Court to
10
Although the existence of the proceedings has been clearly established in the record from
material provided by outside sources (SR. v11 p83), Sherman, Vogel, and District Judge have
still not acknowledged the secret proceedings took place, as follows: Sherman has affirmatively
denied that the proceedings took place (Doc. 4 filed in Case 3:12-cv-00387-B on 02/17/12 at
Page 2) and Vogel and the District Judge have maintained their silence on the issue. Notably, in
addition to Sherman’s written confirmation to third parties that proceedings were held at 1:15pm
in which the District Judge signed the receivership order (the motion for receivership was printed
later that day), the District Clerk’s records show that Sherman’s motion to appoint receiver was
filed at 3:40pm and Vogel personally filed the order appointing him as receiver at 3:41pm. It is
obviously not possible within the space of the single minute between 3:40pm and 3:41pm for all
of the following to have occurred: (1) the District Court to (a) be notified of the motion on the
CM/ECF system, (b) review the motion, (c) print an order, (d) sign the order, and (e) deliver the
signed order to Vogel’s office; and then for (2) Vogel to (a) scan in the order and (b) upload the
order to the Court’s CM/ECF.
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which the District Court’s stay order was made subsequent to, that the stay order
should now be vacated and the District Court was now empowered to divest this
Honorable Court with jurisdiction over the receivership res. (Doc. 878).
Accordingly, the District Court has announced that the District Court no
longer recognizes this Honorable Court’s jurisdiction over the matters on
appeal, and has now actively attempted to divest this Honorable Court of exclusive
control over the receivership res by entering orders as to its distribution of the res,
apparently as quickly as possible. The District Court has also reverted to its former
practice of entering its rulings (on most of the motions) without allowing for
response by the parties adversely affected by the motions, and ruling on motions
that are materially ex parte. Similarly, the District Court is clearly aware that Jeff
Baron is not represented in the trial court—The District Court’s receiver fired
Baron’s trial counsel in 2010— yet the District Court has proceeded to rule
apparently in a rush, as quickly as possible.
The Matters Subject of the District Court’s Orders Challenged on
this Appeal are Before this Honorable Court, and Some have been
Ruled on by this Honorable Court
This Honorable Court has acknowledged its jurisdiction over the
receivership pending appeal, and has ruled or postponed ruling on many orders
regarding the receivership res that have been pled before it. For example, as
discussed above, this Honorable Court ordered that it would carry with the case
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Sherman’s motion for payment and liquidation of receivership assets. (See
Document 511759009 filed in Case 10-11202 on 2/15/2012).
D. Likelihood of Success on Appeal
Appeal Divests the District Court of Jurisdiction Over all Aspects
of the Case Appealed
As a well-established principle of law, two courts should not attempt to
assert jurisdiction over the same matter simultaneously. Griggs v. Provident
Consumer Discount Co., 459 U.S. 56, 58 (1982) (“[A] federal district court and a
federal court of appeals should not attempt to assert jurisdiction over a case
simultaneously. The filing of a notice of appeal is an event of jurisdictional
significance — it confers jurisdiction on the court of appeals and divests the
district court of its control over those aspects of the case involved in the appeal.”;
Dayton Indep. School Dist. v. US Mineral Prods. Co., 906 F.2d 1059, 1063 (5th
Cir. 1990)(“When one aspect of a case is before the appellate court on
interlocutory review, the district court is divested of jurisdiction over that aspect of
the case.”) .
A notice of appeal from the receivership order was filed on December 2,
2010. R. 1699. As a matter of binding precedent, the filing of a notice of appeal is
an event of jurisdictional significance– it confers jurisdiction on the court of
appeals and divests the district court of its control over those aspects of the case
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involved in the appeal. Griggs at 58. The divesture of jurisdiction of the trial court
involves all those aspects of the case appealed. Id. As a matter of well-established
law, the district court loses jurisdiction over all matters which are validly on
appeal. Dayton at 1065 (Griggs is “follow[ed] rigorously” by this Honorable
Court). The sole jurisdiction of a district court with respect to a matter on
interlocutory appeal is to maintain the status quo of the case as it rests before the
court of appeals. E.g., Coastal Corp. v. Texas Eastern Corp., 869 F.2d 817, 820
(5th Cir. 1989); Dayton at 1063.
The District Court was Divested of Jurisdiction over the
Receivership Res
As an well-established principle of law, the effect of an appeal of a
receivership is that the appellate
court is vested with jurisdiction over the
receivership res. E.g., Palmer v. Texas, 212 U.S. 118, 126 (1909). The Supreme
Court held in Palmer “[T]he effect of the appeal was simply ... that the
appellate court still had jurisdiction over the res the same as the trial court
had”. Id. The Supreme Court explained this rule in Palmer, holding:
“If a court of competent jurisdiction, Federal or state, has ... obtained
jurisdiction over the same, such property is withdrawn from the
jurisdiction of the courts of the other authority as effectually as if the
property had been entirely removed to the territory of another
sovereignty”
Id. at 125.
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The Supreme Court has ruled that “Even where the court which appoints a
receiver had jurisdiction at the time, but loses it ... the first court cannot thereafter
make an allowance for his expenses and compensation”. Lion Bonding & Surety
Co. v. Karatz, 262 U.S. 640, 642 (1923). Once the matter was placed before the
Court of Appeals, the property was in the possession of the Court of Appeals, and
“[T]hat possession carried with it the exclusive jurisdiction to determine all judicial
questions concerning the property.” Wabash R. Co. v. Adelbert College of Western
Reserve Univ., 208 U.S. 38, 46 (1908).
Secret Ex Parte Proceedings
The Supreme Court has described secret judicial proceedings as “a menace
to liberty”. Gannett Co. v. DePasquale, 443 U.S. 368, 412 (1979). The
receivership and the order for sale subject of this motion all involve ex parte, secret
proceedings in the District Court, in which advocacy in the trial court has been
allowed only against Baron and the entities whose assets have been seized by
Vogel.
11
The assets ordered liquidated by the District Court have not been
disclosed to either Baron or the LLCs. Similarly, no hearing was held and no
response or argument was allowed regarding the reasonableness of Vogel’s private
sales. In the same way the receivership was imposed, the decision to approve the
sale of the assets was made in secret
between Vogel and the District Court. (Doc
11
Sherman was privy to the District Judge’s signing of the receivership order On November 24,
2010 at 1:15pm. SR. v11 p83. A motion for receivership (R. 1575) was, however, not filed until
later that day at 3:40pm, as reflected in the Clerk’s records.
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883, sealed and ex parte). Similarly, the sales themselves were not to be by open,
public auctions as required by law, absent “extraordinary circumstances”. 28
U.S.C. § 2004; e.g., Tanzer v. Huffines, 412 F.2d 221, 222 (3rd Cir. 1969). Rather,
the sale of the assets was arranged secretly by Vogel, to secret buyers at secret
prices.
Fees may not be Paid in Unauthorized Receiverships
Receivership itself is authorized to conserve property that is subject to
equitable claims in property, pending adjudication of those equitable claims in the
property. E.g. Forgay v. Conrad, 47 U.S. 201, 204-205 (1848); Gordon v.
Washington, 295 U.S. 30, 37 (1935). Receivership is not authorized to seize an
individual’s assets in order to pay for a Court’s investigation of state law claims
against that individual, and is not authorized as a means of preventing a party from
being able to hire legal counsel to represent them. See e.g. Id. There were no
claims pled against Baron’s property or Novo Point LLC or Quantec LLC or the
LLCs’ property. Accordingly, as a matter of controlling precedent, the District
Court lacks subject matter jurisdiction to impose the receivership. Cochrane v. WF
Potts Son & Co., 47 F.2d 1026, 1029 (5th Cir. 1931). Because the District Court
lacked jurisdiction, and because the receivership was not authorized by law, Vogel
and his ‘professionals’ may not be awarded fees from the receivership estates.
Atlantic Trust Co. v. Chapman, 208 U.S. 360, 373 (1908); and see e.g., Lion
Bonding & Surety Co. v. Karatz, 262 U.S. 640, 642 (1923).
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Notably, Vogel’s fees are extensively for investigating and arguing for the
disposition of the estates’ res. The Supreme Court has held that a receiver “[I]s to
stand indifferent between the parties, and may not be heard either in the court
which appointed him, or in the appellate court, as to the rightfulness of any order
which is a mere order of distribution between the parties”. Accordingly, Vogel is
not entitled to fees for work not authorized by law. Similarly, much of Vogel’s fees
are for defending his personal interests and defending his expenses on appeal.
Such fees should not be chargeable against the receivership estates. United States
v. Larchwood Gardens, Inc., 420 F.2d 531, 534 (3rd Cir. 1970).
The Sherman Fee Award has Absolutely No Basis in Law
The fees awards challenged in this appeal include hundreds of thousands of
dollars ($379,761.18) awarded to Sherman as a party and co-defendant and not a
receivership professional.
12
No legal basis was offered by Sherman for the
award.
13
Similarly, no basis in law was found by the trial court in granting the
award. As a matter of fundamental law, under the “American Rule” Sherman must
pay his own litigation costs and is not entitled to raid the assets of non-party Novo
Point LLC and Quantec LLC to pay for the massive
attorneys fees he has run up.
E.g., Buckhannon Board & Care Home, Inc. v. West Virginia Dept. of Health and
Human Resources, 532 U.S. 598, 602 (2001) (“a general practice of not awarding
12
[DOC 896] The District Court’s Order granting doc 467 Motion for Attorney Fees (Ordered by
Judge Royal Furgeson on 5/3/2012) (Entered: 05/03/2012).
13
SR. v5 p236.
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fees to a prevailing party absent explicit statutory authority”); Key Tronic Corp. v.
United States, 511 U.S. 809, 815 (1994); United States v. Larchwood Gardens, Inc.,
420 F.2d 531, 534-535 (3rd Cir. 1970) (“the law imposes on a party the duty to pay
his own fees and expenses” and thus such fees “are not proper charges against the
receivership estate”).
There is not even a colorable basis in law
for the fees awarded to Sherman.
Rather, the award comes in the context where the District Judge and its receiver
view appealing the District Court’s orders as “vexatious litigation” and justifying
receivership over the litigant. (See e.g., page 20 of Document 511837088 filed on
4/26/2012 in case 12-10003). Further, the orders of the District Court come in a
context where the District Court explained to Baron as follows:
“Say you win [on appeal] and there is no receiver. It doesn't make any
difference. This is going on and on and on until Mr. Baron has nothing
.
I mean actually everything
is depleted. I gather that Mr. Baron is worth
lots of money. But it may be that we sell all the domain names. We may
sell all of his stock. We may cash in all of his CD's, and we may seize all
of his bank accounts …. to bring Mr. Baron to a penurious
condition”
(SR. v4 p1042-1043).
“You are a fool, a fool, a fool, a fool to screw with a federal judge, and if
you don't understand that, I can make you understand it” (R. 223).
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In short, the challenged award represents a usurpation of power to take
actions that are clearly not designed to serve any lawful purpose. Instead the
challenged order is one of brute power aimed at the redistribution of private
property not directed by any guiding principle of law but based solely upon the
District Judge’s private conceptions of ‘justice’, however well intentioned they
may be. The District Court appears to see its role as that of a sovereign, lording
over the community, explaining “I have the force of the Navy, Army, Marines and
Navy behind me”, (R. 224), “Just remember, I do have access to the Army, Navy,
Marines and Air Force”, (R. 286).
However, the role of a federal court is not to force itself upon the community
and take by brute force the private property of businesses and individuals. Rather
the constitutional role of the Article III courts is to be “the guardian of individual
liberty”. Stern v. Marshall, 131 S.Ct. 2594, 2615 (2011). The District Judge
below threatened to order the death of a litigant (R. 218) and, as discussed above,
expressed his intention to dissipate all of the litigant’s property before the District
Court’s rulings could be heard on appeal (SR. v4 p1042). It is the constitutionally
mandated role of this Honorable Court to guard against the District Court's
carrying out its threats. This motion prays that this Honorable Court will fulfill
that role.
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E. Irreparable Injury
The public’s perception and confidence in the federal judicial system will be
tarnished if the District Court is permitted to violate the authority and jurisdiction
of this Honorable Court. Two courts cannot exercise jurisdiction over the same
matter at the same time. This Honorable Court has, at its discretion, decided what
matters it would allow the District Court to rule on pending appeal, and which
matters would be held for decision pending resolution of the appeal. Allowing a
district court to unilaterally divest the Court of Appeals of its power and
jurisdiction over the subject of matters on appeal directly threatens the integrity of
the appellate process and threatens public confidence in the federal court system.
Vogel and Sherman filed motions before this Honorable Court seeking to use
the res controlled by this Honorable Court in different ways. This Honorable Court
has not
granted the relief that Vogel and Sherman have requested, and, has instead
ruled that Sherman’s motion will be carried with the case
14
, and has, to this point,
not permitted to District Court to proceed on Vogel’s latest motions. Substantial,
irreparable injury to public confidence in the appellate process will be caused if
Sherman and Vogel are allowed to simply go around the jurisdiction of this
Honorable Court and obtain a favorable ruling from the District Court for the same
matters ruled on by this Honorable Court (not to the satisfaction of Vogel and
14
Document: 00511759009 filed in Case 10-11202 on 2/15/2012.
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Sherman) and for matters currently pending before this Honorable Court – while
this Honorable Court has jurisdiction over the receivership res on appeal.
Further, Vogel and Sherman argue that there can be no appeal from an order
to pay them fees or liquidate assets unless the order is stayed. If that is found to be
the law, failure to stay will deprive the injured parties their right to appeal.
Notably, a substantial amount of assets of Novo Point LLC and/or Quantec LLC
have been ordered liquidated by the District Court in non-auction, private insider
sales arranged by Vogel.
The attorneys and “professionals” to whom the payments are being directed
will be unable, upon information and belief, to repay the money should the awards
be reversed on appeal. Over two million dollars has already been ‘distributed’ to
Vogel and his ‘professionals’ (mostly his law partners), although the companies
were shuttered by Vogel in 2010. That the mammoth fees are a generated billing
exercise is clearly
demonstrated, for example, by Doc. 887, a four page ‘notice’
generated by partners of Vogel in order to inform the District Court in five sections
that “the Receiver sent Mr. Baron his living expenses for May 2012 directly via
U.S. regular mail” as ordered by the District Court (Doc. 884).
Finally, it is undisputed that domain names represent the entire business
enterprise of Novo Point LLC and Quantec LLC. By definition, the value of that
business is directly dependent upon the goodwill associated with the domain names
as their entire value exists based on their name. That is all they are—names. If
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control of the names is lost and placed in the hands of a third party, the companies
will have lost control of the use and reputation associated with those names.
Threat of reputation loss has been recognized as irreparable. E.g., Kos
Pharmaceuticals, Inc. v. Andrx Corp., 369 F.3d 700, 726 (3rd Cir. 2004).
Notably, there are no exigent circumstances requiring that the sales occur
immediately and, granting an emergency stay is necessary to protect the
jurisdiction of this Honorable Court over the receivership res currently in the
possession of this Honorable Court.
F. No substantial Harm if Stay Granted
There is no substantial harm to any party or the public interest. This
Honorable Court has jurisdiction over the receivership res and has the authority to
determine how motions relating to that res will be handled. A stay would merely
respect the jurisdiction and authority of this Honorable Court of the matters which
have been appealed to that Honorable Court. Notably, Vogel and Gardere have
already previously been paid by the District Court over two million dollars in fees
15
R. 1578 (paragraph 13, “the appointment of a receiver is necessary under the circumstances in
order to remove Baron from control of his assets and end his ability to further hire and fire a
growing army of attorneys.”), 1619-1632. One reason cited by Sherman in his motion was that
three business days before, Baron had hired an attorney to assist in objecting to Sherman’s
Attorney’s fee application in the bankruptcy court where Baron is a creditor. 1576-1577.
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G. Conclusion
Wherefore, Appellants pray that this Honorable Court grant this Motion for
Stay Pending Appeal and for such other and further relief to which they may show
themselves justly entitled.
Respectfully submitted,
/s/ Gary N. Schepps
Gary N. Schepps
Texas State Bar No. 00791608
5400 LBJ Freeway, Suite 1200
Dallas, Texas 75240
(972) 200-0000 - Telephone
(972) 200-0535 - Facsimile
Email: legal@schepps.net
COUNSEL FOR APPELLANTS
CERTIFICATE OF SERVICE
This is to certify that this brief was served this day on all parties who receive
notification through the Court’s electronic filing system.
CERTIFIED BY: /s/ Gary N. Schepps
Gary N. Schepps
COUNSEL FOR APPELLANTS
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CERTIFICATE OF CONFERENCE
This is to certify that counsel for Vogel opposes the stay requested by this motion,
and counsel for Sherman has not stated their position. Both parties were notified
of the filing of this emergency motion..
CERTIFIED BY: /s/ Gary N. Schepps
Gary N. Schepps
COUNSEL FOR APPELLANTS
CERTIFICATE OF NOTICE
This is to certify that notice of the filing of this request for emergency relief was
provided by telephone to the Clerk of the Fifth Circuit Court of Appeals and to
counsel for the Appellees.
CERTIFIED BY: /s/ Gary N. Schepps
Gary N. Schepps
COUNSEL FOR APPELLANTS
CERTIFICATE OF EMERGENCY
This is to certify that the facts giving rise to the need for emergency relief are true
and complete.
CERTIFIED BY: /s/ Gary N. Schepps
Gary N. Schepps
COUNSEL FOR APPELLANTS
Case: 12-10489 Document: 00511848491 Page: 30 Date Filed: 05/08/2012
